As The Puerto Rico Lawsuits Begin “A Bankruptcy Is A When, Not An If” by Tyler Durden

Puerto Rico’s bankruptcy has been a when, not an if, for a long time. The denouement of these things always seems to take longer than a reasonable observer would expect. From Tyler Durden at zerohedge.com:

Last July, Puerto Rico defaulted on hundreds of millions in debt, however under the PROMESA federal rescue law put together in the last minute, creditor litigation was put on hold – a kind of deferred debtor protection without the actual bankruptcy. The law was meant to encourage Puerto Rico and its federal financial oversight board to negotiate debt-cutting agreements with creditors. No deals were reached and on midnight of May 1 into Tuesday, the litigation freeze expired, opening the doors for creditors to take Puerto Rico to court, in hopes of blocking the next step in the Puerto Rico restructuring, namely Governor Ricardo Rossello’s plan to impose drastic repayment cuts. As a reminder, Puerto Rico defaulted on $1.3 billion of principal owed since the previous governor declared the $70 billion public debt load unpayable in June 2015.

And as expected, on Tuesday Puerto Rico and its federal financial oversight board were flooded with the first lawsuits from stakeholders, with more expected in the coming days, which could ultimately push the insolvent U.S. territory into bankruptcy. The lawsuits, according to Reuters, include complaints from holders of Puerto Rican sales-tax-backed debt, from general obligation bondholders and from bond insurer Ambac Assurance Corp.

The first group, those holding sales-tax backed debt known as the COFINA bondholders, allege that the island’s debt-cutting plans violate the U.S. Constitution.

The second group, those holding general obligation debt which is guaranteed by the island’s constitution, are demanding payment on $242.5 million of debt defaulted upon since July, including damages and interest of more than $102 million.

Finally, there is Ambac which insures $2.2 billion of Puerto Rican bonds, and which filed four lawsuits, including two against the island’s government and another against U.S. Treasury Secretary Steven Mnuchin, seeking a lien on Puerto Rican rum taxes collected by the U.S. Treasury Department.

“Puerto Rico is no longer shielded from creditors rushing to the courthouse to lay claim to its assets – that includes the beaches, pieces of art, historical furniture and any assets whether they are nailed down or not. The people of Puerto Rico have had enough. The governor and the board have a moral imperative to act immediately” said Rep. Nydia Velazquez, a New York Democrat, who is calling on a federal control board overseeing Puerto Rico’s finances to seek a court-supervised debt restructuring similar to Chapter 9.

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